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AUDUSD has been inching lower in the short-term, generating a structure of lower highs and lower lows. Although the pair made efforts to recoup some losses, it quickly retraced towards its multi-month lows as the 50-day simple moving average (SMA) capped upside moves.

The momentum indicators currently suggest that near-term risks are tilted to the downside. Specifically, the RSI is flatlining beneath its 50-neutral threshold, while the stochastic oscillator is descending near the oversold zone.

Should the negative momentum strengthen, the price could initially test the recent low of 0.6698. Sliding beneath that floor, the 27-month low of 0.6680 might come under examination. Failing to halt there, the price may decline to form fresh multi-year lows, where the April 2020 resistance zone of 0.6570 could reject any further declines.

On the flipside, bullish actions could propel the price towards the recent support region of 0.6856. A break above the latter could open the door for the recent peak of 0.6913 before the spotlight turns to 0.7010. Even higher, the price advance may cease at the August high of 0.7136.

Overall, even though AUDUSD is pushing for some recovery, the pair seems unable to edge higher and escape its recent lows. Therefore, a break above the 50-day SMA is needed to revive bulls’ hopes for a sustained rebound.

The dollar remains steady and holding above solid supports at 109.58/51 (broken Fibo 61.8% of 110.77/107.65 / 10DMA) in European session on Thursday.

Wednesday’s pullback from the top of strong rally following US inflation report, sparked by signals of possible intervention of the Bank of Japan, was strongly rejected after markets realized that intervention is for now unlikely.

The greenback kept fresh bullish tone, regained after hotter than expected inflation in August, revived expectations that Fed will remain on track for another 0.75% hike, with some hints of being even more aggressive in the policy meeting next week.

This offers fresh support to the US currency, along with daily techs, now returned to full bullish setup and the action underpinned by Tuesday’s large bullish daily candle.

Repeated close above broken Fibo level and 10 DMA to re-confirm bullish stance and keep focus at the upside, with immediate target at 110.03 (Fibo 76.4%) and key barrier at 110.77 (new 20-year high posted on Sep 7).

Res: 109.89; 110.03; 110.53; 110.77.
Sup: 109.51; 109.21; 109.09; 108.84.

The Chinese culture says that one picture is worth a thousand words, and the exhibition below from the analysis of Goldman Sachs shows us all the drops in the U.S market, as well as their comebacks.

Source: Goldman Sachs

First of all, they divide the Bear Markets into Structural, Cyclical, and Event-driven declines. As you can see, the recent Structural ones were in 2000 – 2002 (dot.com crisis) and 2007-2009 (Lehman Brothers crisis). An Event-driven bear market took place in 2020 for only one and a half months. The way they label the corrections of the market is right, because in the first 2 examples, the fault came from the structural policy of the stock exchanges and the supporting money supply through the banking-loan system respectively, and the third example came from the event of the virus COVID-19, which in turn spread fear for the humanity.

That said, let’s see if we are supporting the argument they depicted for the nowadays correction as a Cyclical one, with only 8 months duration till now. The most recent Cyclical decline was in 1990 (only 3 months), where after the month of June and the unemployment rate at 5,2%, and the all-time highs for DOW30 at 2900 points, President Bush decides to turn the lights into threatening Iraq with an embargo and an inevitable war, and last but not least, he broke his promise about not raising taxes. After a month, the U.S entered into a recession and till the end of the year, the unemployment rate was at 6,3%.

In my opinion, these facts are not considered Cyclical, but since they come from decisions of higher officials, such as the President of the USA, should be considered Structural. So as be for the declines. Hence, for me, we have a Structural Bear Market which came from the monetary policy of the overheating M2(money supply through the Federal Reserve buying senior bonds) for over a decade.

But the article aims to prove whether we have a Structural/Cyclical or an Event-driven decline, the reasons for not having seen the trough yet. The 3 reasons are:

1. The transition from a bear market to a bull market tends to be strong and driven by the expansion of valuations, regardless of the type of bear market. Here, we have a good picture of the giants, like Apple, Tesla, etc., but the overall economic conditions and valuations are poor and strongly declined.
2. Sentiment-based Risk Appetite Indicator and Fundamentals-based Bull/Bear Indicator, (GSRAII) and (GSBLBR) respectively, help identify potential turning points. When both indicators come to an end/edge provide strong signals.
3. Approaching the worst point of the business cycle, peaking inflation and interest rates and negative positioning are also important to recognize the turning point.

Also, as you can observe in the picture, the average for a Structural/Cyclical Bear Market is between 26-42 months and the recovery takes between 50 -111 months. As much as double the correction phase. Therefore, because we eliminate the Event-driven one, since we are in the middle of an uncertain result of the Russia – Ukraine war, persistent inflation caused by the high prices of energy (crude/brent oil and natural gas), and the lack of supply affecting the commodities (corn, wheat), the upcoming global recession is inevitable and the one that we do not know yet is the depth.

With that being said, we believe that stocks are trapped in a higher degree consolidation. On SP500 we are observing two ideas for wave (IV). The first and primary count shows room for wave C to retest the 2022 lows. VIX known as a fear index also suggests that fear is not at the extreme yet, meaning that there is room till we see more pessimism, which should reach extreme readings before we may finally see a bottom. Unfortunately, that’s how market and crowd behavior works.

If price would stay sideways for a longer-period in this 48099 3659 range than triangle is also one valid scenario, but even this one is incomplete. So it appears that based on two counts there can be more volatile moves by the end of the year.

Spot gold extends steep decline from $1735 lower top into third consecutive day, under renewed pressure from fresh strength of the dollar.

US inflation rose above expectations in August, adding to expectations that Fed will deliver another massive 75 basis points rate hike next week, giving fresh boost to the greenback, which was in defensive in past few days and deflating the yellow metal.

Fresh weakness hit the lowest in eight weeks in early Thursday’s trading and pressuring key supports at $1680 zone, where lows from Mar 2021 till July 2022 formed a higher base on a monthly chart, with support being reinforced by Fibo 38.2% of larger $1046/$2074 ascend (2015/2020) and 200WMA.

Technical studies are bearish on daily and weekly chart, supporting the action, though oversold conditions suggest that bears are likely to face increased headwinds on approach to key supports.

Firm break of $1680 zone would open way for stronger acceleration lower, as completion of a double-top pattern on monthly chart on break of higher base would generate reversal signal and risk extension towards $1560 zone (Apr 2020 low/50% retracement of 1046/$2074).

Broken psychological $1700 support and falling 10DMA ($1708) offers solid resistances which should cap upticks.

Res: 1691; 1700; 1708; 1721.
Sup: 1680; 1676; 1632; 1608.

WTI futures rebounded off the eight-month low of 81.20 and reached the 20-day simple moving average (SMA) at 89.50. The technical oscillators are showing some contradicting signs. The MACD is surpassing its trigger line suggesting more gains; however, the stochastic is appearing overbought as it is ready to post a bearish crossover within its %K and %D lines.

Should the commodity manage to strengthen its positive momentum, the next resistance could come around 90.60. A break above this level could take the price until the 40-day SMA at 91.90 ahead of the short-term falling trend line near 93.90 and the 200-day SMA at 96.00, shifting the bias to a neutral one.

However, if prices are unable to break the 20-day SMA, the risk would remain to the downside with the eight-month trough at 81.20 coming into focus again. A drop lower would signal a resumption of the long-term downtrend that’s been developing since March. The next key support to watch lower down is the inside swing high of 72.73, registered in December 2021.

All in all, WTI crude oil futures seem to be in a downtrend, recording lower lows and lower highs in the short-term, while an advance above the 200-day SMA may change the outlook to neutral.

EUR/USD

Yesterday’s trading session was marked with low volatility as the bears couldn’t gain enough momentum to continue the downward movement, and the pair found a strong support zone at around 0.9959. At the time of writing this analysis, the EUR/USD is locked in the narrow range of 0.9960 – 1.0025. It is highly possible that this consolidation phase will continue in the early hours of today’s trading, before a potential resumption of the downtrend follows suit. Even though the forecasts remain negative – for a further depreciation of the single European currency, the bulls would most probably try to take control over the market and target the resistance at 1.0025, where a successful breach may lead to a deeper correction targeting the next resistance at 1.0078. On the other hand, if the local resistance at 1.0025 withholds the bulls’ pressure, or if the sellers manage to keep the price below the key resistance at 1.0078, then it is highly likely to witness a new wave of sell-offs heading the price towards the low at 0.9877. However, this scenario may be realised only in case the bears manage to violate the lower border of the range lying at 0.9960. Today, increased volatility can be expected around the release of the initial jobless claims data for the U.S. at 12:30 GMT. A better-than-expected data may trigger an impulse move and give the necessary stimulus for the bulls to attack the low at 0.9877 and even that at 0.9812.

USD/JPY

During yesterday’ trading session, the bears once again managed to thwart the bulls’ attack around the resistance at 144.90 and the Ninja convincingly bounced back, reaching the support at 142.68. In fact, it seems that the bulls are starting to lose momentum just above the mentioned support, and it looks like the pair has found itself in a short consolidation in the range of 142.68 – 143.49. The forecasts for today’s trading session are for the bears to try to take the price out of this channel and to head the pair towards a test of the critical support at 141.64. In the opposite direction, if the bulls manage to overcome the upper border of the range and lead the price above 144.00, then we may witness another bull attack on the critical resistance at 144.93.

GBP/USD

The situation with the GBP/USD is quite similar to that of the EUR/USD. After the sharp decline from yesterday, the bulls managed to limit the sell-off to just above the support zone at 1.1475. Furthermore, the sterling recovered part of its recent losses and tested the psychological level at 1.1600, but the bulls couldn’t gain enough momentum to violate it. At the time of writing, the pair is holding just below the mentioned resistance and it is highly possible for the pair to start consolidating in the interval between 1.1475 and 1.1600, before investors eventually start to define the future path of the pair. Essentially, the current market sentiment is for a continuation of the downtrend, but only if the bears manage to successfully violate the critical support at 1.1475. If this happens, this could be considered as a good opportunity for the sellers to strengthen the negative expectations and to head the price towards a test of the psychological level at 1.1400.

EUGERMANY40

The EUGERMANY40 made modest gains in the European trading session and managed to recover part of yesterday's losses. Following the worse-than-expected CPI reading, the index plunged alongside other global markets on speculation that the FED will maintain its hawkish stance for longer than expected. The price of the index approaches the critical support level at 13000, thus the forecasts for today’s trading session are for this level to be tested. In case the price falls below it, then we may expect a further depreciation towards the next key support at 12717, which is a logical scenario considering the continuing supply issues, increasing energy prices and inflation rates, and the overall economic situation as a result of the conflict between Russia and Ukraine. Nevertheless, before investors decide to take short positions, they should consider the possibility of the support at 13000 withholding the bears’ pressure and the forming of a short consolidation in the interval of 12979 – 13190, before a potential resumption of the downtrend is to take place. In the upward direction, the first key resistance is found at 13190, followed by the level at 13346.

US30

Both the European markets and the U.S. blue-chip stock index closed in the red and the index lost approximately 4.5% of its value. However, the bulls managed to limit the sell-off at the 30975 support level, and at the time of writing the analysis, the US30 is trading in a very narrow range in the channel of 30975 – 31291, as the market takes a breathing after yesterday’s sharp decline. A successful breach of the support at 30975 would give investors the necessary incentive to attack the next significant levels at 30700 and at 30500. An alternative scenario, in which the bulls manage to take control and violate the resistance at 31291, would easily lead to a deeper correction towards the level at 31629. Today, an increase in volatility can be expected around the announcement of the data on the initial jobless claims, the Philadelphia FED survey and the empire state manufacturing indices, as well as the retail sales data for the U.S., all of which are scheduled for 12:30 GMT.

Markets

Yesterday, markets entered calmer waters after the massive sell-off in both bonds and equities triggered by higher than expected US August inflation data published Tuesday. Yields moves were much more moderate compared to Tuesday. Even so, a further curve flattening (EMU)/inversion (US) illustrates that markets are adapting to the idea that central banks won’t be able to ease their anti-inflation crusade anytime soon. The US 2-y yield rose another 3.2 bps. The 30-y eased 2.9 bps. A 75 bps hike is fully priced in for next week’s FOMC meeting. The market sees about a 1 in 3 chance for the Fed stepping up the pace of rate hikes to 1.0%. The German curve showed a similar picture with the 2-y adding 2.9 bps. The 30-y yield dropped 4. 7 bps. Eco data were only second tier yesterday. EC Chair Ursula von der Leyen’s State of the Union aired some options on how Europe might tackle the impact of high energy prices on the economy, but the message wasn’t concrete enough to have any impact on markets. Equities showed a mixed picture. European indices still felt some follow-through losses after Tuesday’s WS sell-off (EuroStoxx50 -0.52%). US indices finished in green (Dow + 0.1%; Nasdaq +0.74%) but gains after all were limited given Tuesday’s huge loss. The dollar also took a breather. DXY closed near 109.66 (from 109.82). USD/JPY left the 145 area (close 143.08) as Japanese authorities signaled high alert on further yen weakness that might translate into FX interventions. After Tuesday’s setback, EUR/USD hovered near parity without much of a clear direction (close 0.9981). Sterling slightly outperformed the euro (EUR/GBP close 0.8648) after UK inflation came in close to expectations at 9.9%.

This morning, sentiment in Asian markets remains inconclusive. Most indices are trading little changed with China underperforming. US yields continue drifting higher and so does the dollar (USD/JPY 143.65, EUR/USD 0.997). US data again will take center stage today with the retail sales, weekly jobless claims, the Empire manufacturing survey, The Philly Fed business outlook and US production data scheduled for release. Especially the retail sales have market moving potential. A decline in gasoline prices is expected to put a lid on headline sales. However, core sales (control group expected at 0.5% M/M) still are expected to show decent growth. Retail sales is a notoriously volatile series. Even so, signs of resilience in global demand might reinforce the idea that the Fed has more work to do. In this respect, a good retail sales report might be no good news for risk sentiment. The DXY USD-index settled in a ST consolidation pattern between 107.60 and 110.32. We see risk for an upside test. After EUR/USD’s return below parity, the 0.9864 low might again come on the radar.

News Headlines

Australian employment grew by 33.5k in August, matching consensus estimates of 35k an undoing a chunk of the July losses (-40.9k). Despite job growth, the unemployment rate ticked higher from the 48-year low of 3.4% to 3.5%. It follows the participation rate rising from 66.4% to 66.6%, boosting the size of the labor force. It is expected that inbound migration could extend that trend further, potentially easing wage and thus inflationary pressures over time. Today’s data is seen strengthening the RBA’s case to slowdown the tightening pace after four consecutive 50 bps rate hikes. Markets attach a 60-40 probability on hiking by 25 or 50 bps at the October 4 meeting. Australian swap rates rise between 3.2 and 5.1 bps this morning. The Aussie dollar strengthens marginally vs the dollar (AUD/USD 0.675) but remains near two year lows.

Staying Down Under, GDP growth in New Zealand over the second quarter this year rebounded by 1.7% q/q after contracting 0.2% in Q1. The kiwi economy is now 0.4% larger than one year ago. Both the quarterly and the yearly figure beat estimates. The services industry (2.7%) lead growth, driven sectors benefiting from tourism. These include accommodation and food services (30% q/q), arts & recreation (19.9%) and transport services (19.7%). Goods-producing industries contracted sharply as manufacturing tanked 5.9%. On an expenditure basis, exports of services was a major boost (60.7% q/q) but household spending was weak (down 3.2%). The New Zealand dollar this morning rises marginally but left intraday highs already. NZD/USD continues to test important support at 0.60..

WTI crude rallied after a slower increase in US inventories. From the daily chart’s perspective, sentiment remains downbeat after the price broke below the key support at 86.00. The bears may see bounces as opportunities to sell at a better price. The current recovery has met stiff selling pressure at 90.00 which coincides with the 30-day moving average. However, if the buy side manages to push past this supply zone, 94.00 could be next. 84.20 is the closest support and its breach could resume the downtrend below 81.30.

The New Zealand dollar recovers over upbeat Q2 GDP. The pair came under pressure near a former support (0.6160) over the 20-day moving average. The long bearish candle is a sign of capitulation as the short-term mood tanks. A break below the psychological support of 0.6000 has invalidated the recent rebound and indicated that the path of least resistance is down. May 2020’s lows around 0.5920 could be the next target. An oversold RSI may cause a bounce to 0.6050 where trend followers could sell into strength.

The pound bounces back as Britain’s core CPI stayed stubbornly high in August. The sharp decline came to a halt at the base of a previous bullish breakout at 1.1480. The RSI’s oversold condition attracted some bargain hunters in the demand zone. The support-turned-resistance at 1.1620 is the next hurdle where trapped buyers would be looking to exit. However, its breach would send Sterling back to 1.1730 on the 20-day moving average, suggesting that the bulls may not yet have had their last word.